The wool market in Australia moved north again this week on the back of a small national offering, expected low supply going forward and the need to feed machinery. The AWEX EMI showed a modest increase of 9 cents in local currency terms, with a small loss of 3 USC.
Broad merino fleece types were the strongest segment during the week and registered gains of up to 30 cents in Melbourne. Fremantle had a week off last week so prices were slightly lower compared to two weeks ago.
Superfine fleece types rose by a modest 10 cents, while skirting types followed the fleece trend with the broader, lower VM lots at times extreme. Both crossbred and carding wools drifted lower with only small volumes holding prices from falling significantly at present. Next week sees another small offering with Fremantle again taking a week off.
There are a lot of questions being asked by exporters as they try to calculate the volumes available in coming weeks. At the same point last season grower stocks boosted supplies, but anecdotal reports show that there is little hold wool available beyond the usual small volume of July seller wools that have been rostered for week 53.
Even with most combing mills in China operating on reduced capacity at present, this small supply should keep the market firm through until the recess. Certainly the futures market agrees with this scenario and prices on a forward basis are well bid until August. After that prices dip rapidly with buyers unable to find orders at close to current levels beyond August.
The mood in China has deteriorated in the past couple of weeks, in part due to seasonal trends, but also as a result of a couple of operations closing or restructuring. These changes may reverberate through the processing pipeline as current contracts are renegotiated or delayed. It is a long way short of a catastrophe, but at this stage merely a rationalisation of the early stage-processing sector.
For many years there has been an overcapacity in topmaking. Spinning also has had an overcapacity, but those operations can turn to other fibres, whereas a combing mill is able to process wool only.
Credit supply in China, together with tightened labour and environmental laws have increased the pressure on some operations and no doubt there will be further consolidation in coming months. The outcome will be a leaner, more efficient productive early stage processing industry, principally operating in China, better able to process the current wool clip and hopefully for them at a profitable level.
Elsewhere in the world uncertainty prevails courtesy of the impending BREXIT vote, the Fed Reserve’s decision not to raise interest rates yet, and the US Presidential elections. These factors conspire to create uncertainty in the minds of processors and retailers.
There is much discussion about the outlook for wool in 2016/17 and beyond. Security of supply is a concern for those mills with a heavy investment in machinery and infrastructure and they realise that prices received by woolgrowers around the world must be sufficient for them to maintain production in the longer term, just as reasonable margins are required for those who spin, weave or knit the product.
Consumers are needed to continue buying the products, and despite some of the turmoil in world markets there are enough wealthy middle class consumers around to do the job. New advocates and customers are being created with the transition of merino into the casual/sportswear sector and these will replace those who have stopped wearing suits to the office.
Wool prices have remained stable in USD terms for the past three months, apart from the one-week blip during the IWTO conference. The longer-term chart shows a strong but steady upward trend for the past 12 months and for most end users, wool is not too expensive. Some sectors like the Korean school uniform segment are moving to cheaper alternatives, but the growth in next-to-skin merino fabric for the leisure sector is growing exponentially.
An important yarn exhibition in Florence at the end of the month will showcase the collections and trends for the 2017/18-winter season. Feedback from this event will go a long way to determining the greasy wool market’s fortunes in the remainder of this calendar year.
